Thursday, March 13, 2008

Bailing Out the Banks

If it's inevitable that a Federal bail-out of the nation's leading banking institutions is required to stave off catastrophe, shouldn't we just cut to the chase and get to it? Some very smart people say "yes." From today's Wall Street Journal:

At a lectern in a room of venture capitalists, Silicon Valley executives and professors at the Stanford Institute for Economic Policy Research last week, Larry Summers, former Treasury secretary and now Harvard professor and hedge-fund adviser, was at his gloomiest.

In the audience, Myron Scholes -- Nobel laureate in finance, veteran of the Long-Term Capital Management hedge-fund debacle and now chairman of his own hedge fund -- was listening and scribbling on a yellow legal pad. His conclusion, one gaining momentum, is that the government eventually will spend a lot of taxpayer money to clean up the current credit mess and prevent economic catastrophe.

"I think they should at least be thinking about it," he said. "If you're going to do it anyway, why not do it sooner?"

A Wall Street Journal survey of economic forecasters, to be released today, found that 32 of 51 economists (63%) said it is likely or certain that Washington will use public money to address the deepening housing crisis.

Wall Street would love what Treasury Secretary Henry Paulson derides as "a bailout," a way to unload its mistakes onto taxpayers. But unless the tide turns soon, the severity of the housing bust and fragility of the financial system may force even his hand.